Bermuda's financial regulator is confident that it will achieve equivalence with the European Union's imminent Solvency II regulations.

Yesterday the Bermuda Monetary Authority (BMA) announced that it had taken an important step nearer that goal, by starting to conduct a pilot of its internal capital model (ICM) review process with some of the Island's biggest commercial insurers.

The ICM framework will allow (re) insurers to use their own internal capital models, once reviewed and approved by the BMA, to determine the amount of regulatory capital that would be required for such companies.

ICM is a key part of the BMA's regulatory change programme, which is designed to prepare the jurisdiction's insurance regulations for third-country equivalence assessments with global regulators, in particular under Europe's Solvency II Directive.

BMA chief executive officer Jeremy Cox said: "The Authority has reached another important milestone in our Solvency II equivalency roadmap with the ICM pilot assessments. Conducting this pilot is a clear demonstration that we are making significant progress with our planned enhancements to Bermuda's insurance regulations, in line with international best practice.

"As the time draws nearer for third-country assessments under Europe's Solvency II, we are confident that the changes being made to our regulatory framework will be commensurate with the directive's requirements."

Achieving regulatory equivalence is particularly important for Bermuda-based insurance companies doing business in the EU, who could otherwise be competitively disadvantaged.

Craig Swan, director, Policy, Research and Risk Assessment, who is leading the internal models initiative, said: "The pilot enables the Authority to test its review process, allowing for refinements to be made to the framework as required, and will assist in our resource planning to support the process moving forward.

"The ICM assessment includes evaluating the adequacy of the design, statistical quality and calibration of the models submitted, and, importantly, the governance structure, controls and documentation surrounding them."

Mr. Cox said: "Once the framework is implemented the Authority will provide approval for a model for regulatory purposes only if it is assured that all relevant minimum standards are met, and that an insurer has established an effective and suitable track record of reliable risk management.

"We will be applying rigorous scrutiny to the internal models submitted for review, given that application of approved internal models may result in reduced capital requirements for some insurers.

"We are also continuing to build on our technical resources to conduct the analysis that this initiative will require moving forward, currently adding further experienced resources to our existing in-house Actuarial Services team."

The Authority formally established the standards and applications process for permitting the use of insurers' internal capital models in July of last year when it issued guidance notes outlining the various components of the ICM framework.

These components include detailed pre-application conditions insurers must meet prior to submitting their models for review; the application review procedures the Authority will follow; and the monitoring and control activities the Authority will undertake once a model has been approved.